Expert stock tips for 2009 (part 2)
Searching out value: We highlight what the experts view as some of the stronger stock-picks for 2009
In the second in our series, (read part one, we gather tips for 2009 from investment experts. Our tipsters are Jeremy Batstone-Carr, director of private client research at Cha
Here's part two:
British American Tobacco (BAT)
The tobacco sector continues to demonstrate remarkable resilience and is expected to weather the storm better than other consumer staples. Jeremy Batstone-Carr, of Char
Capita
Capita works on behalf of both public sector and private organisations, in such areas as customer services and human resources. Although the outsourcing industry is well established, only 5% of the potential £95bn UK market has been tapped so far, providing plenty of opportunity for growth, says Killik's Jackson.
He believes that the group has a high degree of visibility over its revenues because the majority comes from long-term contracts where the average length is 10 years with no material contract renewals until 2010. Jackson says: 'The financial position remains strong. Strong free cash flow generation is also being deployed on share buybacks and dividends, with the 2008 interim payout increased by 20%.'
Centrica
Centrica secures and supplies gas and electricity to residential and business customers throughout the UK, North America and Europe. In contrast to the other players in the UK energy retail market, Centrica is not vertically integrated and is looking to acquire a 25% stake in British Energy, the UK nuclear generator, to help fill the gap says Jackson. He says: 'The shares are currently trading at a large discount to the pan-European peer group and offer a prospective 5.5% yield.'
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Cobham
Cobham operates in the design, manufacture and support of advanced aerospace and defence systems for land, sea and air platforms. Some 75% of revenues are derived from government/military. A strong balance sheet is attractive at this stage in the cycle and provides scope to make further earnings-enhancing acquisitions says Jackson, adding: 'The most recent trading statement on November 5 highlighted the business is trading in line with expectations. We believe the current stock market downturn provides a very attractive opportunity to gain an exposure to a global leader with a fantastic long-term track record.'
Compass Group
Char
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Croda
Croda manufactures speciality and industrial chemicals used in many everyday items. Its products can be found in cosmetic creams and lotions, dietary supplements, various foods, plastic bags and motor vehicles. Batstone-Carr says: 'Despite the poor outlook for chemicals companies generally we firmly believe that the combination of improved business mix, coupled with strong product pricing power should continue to drive ongoing margin improvements and earnings. Croda is well positioned to take advantage of ongoing demand for increasingly sophisticated personal care and naturally occurring products from an ageing population.'
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GlaxoSmithKline
GlaxoSmithKline is a leading global pharmaceutical group that manufactures prescription, over the counter and health related consumer products and UBS rates the firm going into 2009. The group believes that the pharmaceutical sector is one of the few traditionally defensive sectors with low debt levels, and should provide defensiveness against refinancing risk during an economic downturn.
Manca says: 'Overall we believe Glaxo's diversified and stable free cash flows, interesting late-stage pipeline assets, and compelling valuation make it defensive against cyclical headwinds affecting other industries. With a dividend yield above 5%, and a wide ranging portfolio of leading brands we believe Glaxo well positioned in this more challenging environment.'
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